PIRA Energy weekly oil market recap: Week ending 11th August, 2013

PIRA Energy Group analysis of oil market fundamentals for the week ending 11th August, 2013 has revealed the following:

World

Brent and LLS premiums to WTO have continued to shrink, driven by declining Cushing crude stocks, collapsing from more than US$ 21/bbl in February to low single digits in July.

At current pipeline flow rates, the Cushing crude market is short crude, which is now coming out of storage. After September, crude stocks will be at minimum operating levels, and this supply will have to come from somewhere else.

OPEC crude production is predicted to be unchanged versus 2013. Non-OPEC supply is expected to grow in 2014. US and Canada will be the main contributors, with significant growth from shale and bitumen.

A reduction of non-OPEC unplanned disruptions, particularly in South Sudan will also contribute to 2014 growth. On the OPEC side, Iraq and Iran 2014 growth is offset by supply reductions in core OPEC countries.

The release of IEA’s May and preliminary June stock data for Europe indicates that end 2Q13 stocks are below preliminary figures. Instead of being roughly flat for the second quarter, they were down and ended below last year and at the lowest level in over 5 years. Over half of the downwards revision was in crude oil inventories.

Gasoline demand rose towards 1 million bpd, with a modest change in yield. However, stocks still posted a modest build.

Gasoil demand eased with lower incremental exports.

Refinery margins took another hit with gasoline cracks causing most of the damage. Middle distillate and naptha cracks generally held up.

Saudi Arabia

Pricing for many of the grades, other than Arab Heavy, was raised with respect to their benchmark differentials. The largest upward adjustments were generally in the lightest grades.

Arab Heavy for delivery into Asia and the US was lowered marginally. Several factors supported tighter pricing.

The market is still missing export volumes of lighter crudes, like Libyan and Nigerian grades. Refinery margins have generally been supportive and Saudi crude still enjoys a pricing advantage against West African grades.

USA

Total commercial stocks increased for the week ending 2nd August, by roughly one million bbls less than the increase a week earlier. Products built as increased product imports offset stronger reported demand and lower product output.

Cushing crude stocks are now at the lowest level since the first quarter of 2012.

Record propane exports, which will gain sharply by the fourth quarter, expectations of crop drying demand and high levels of petchem feed usage mean that propane stocks will remain well below last season.

US ethanol prices advanced for the week ending 2nd August despite declining corn values. Cash production margins rose to the highest levels since May.

RIN values increased after collapsing in late July. Frost has damaged some of the sugarcane crop in Brazil’s South-Central region, which will result in a lower ethanol output than originally anticipated.

US ethanol manufacture rose for the week ending 2nd August to 853 000 bpd from 832 000 bpd in the previous week. PIRA believes that the bump in production will be short lived as several plants in the Midwest are running out of corn and will be idled later this month and in September.